Property is a low-risk investment

Kate Faulkner, founder of information portal Designs on Property, says the idea of one property market moving up or down is outdated.

“We’re seeing huge numbers of micro markets in which property prices within a mile of each other can be rising, falling or staying the same,” she says.

It depends on the area and the demand for property. Some places will see huge competition between buyers while others won’t attract attention.

“Average prices are no use,” she says.

“The only person that can tell you what’s happening is a good local estate agent.”

Property should always be your first investment

For anyone under the age of 35, the expectation is to save your money until you’ve bought your first house. However, with interest rates so low and wages stagnating, the average age of first home buyers has risen to 30 in the UK.

Click & Invest Investment Manager Alex Neilson suggests that leaving your deposit savings in a bank for over five years, may be a good low-risk option, but it’s not always the best way to grow your money.

“If you’re a young professional looking to buy a property within the next three to five years or more, then investing might be your best option,” says Alex.

“Saving is always more suited for short-term goals but these days, most people are building up their deposit over a number of years, so for these kinds of long-term commitments, investing offers the potential for greater returns, “ Alex suggests.

You can’t make money from property anymore

House prices may not be soaring as they were a few years ago but that doesn’t mean to say it’s a no-go area, says Kate Faulkner.

“The nice thing about property is that however bad it is you can always make money – you just need to be savvier than before and get good tax advice.”

If your intention is to sell your property portfolio to fund your later life then make sure you prepare well in advance.

“Many people want to liquidate their portfolios but leave it too late to benefit from tax mitigation, such as various allowances,” she adds.

What’s more, Rachel Springall, spokesperson for Moneyfacts, points out that many lenders have cut buy-to-let mortgage rates in the search for new business.

“The average five-year fixed rate on buy-to-let has fallen from 3.58% to 3.04% in just 12 months for those with a 40% deposit,” she adds.

What’s more, data shows that the number of mortgages on offer has hit its highest level since before the financial crash a decade ago.

Buy-to-let is the best income source

“This has been a myth for years,” says Kate Faulkner.

“A good financial adviser will make you a 4% return today and you’d be lucky to make that return out of buy-to-let unless you had a house of multiple occupation and were renting out rooms.”

You need to factor in the costs associated with property ownership, including general maintenance, as well as how to cover the mortgage if the property is empty.

Improving a property increases its value

This isn’t necessarily the case as it will depend on the property, according to Melfyn Williams, director of Williams & Goodwin estate agents and the former chairman of the National Association of Valuers & Auctioneers.

“There’s only so much you can spend on a house,” he says.

“Kitchens and bathrooms do help sell a house but there’s no point putting a brand new £30,000 kitchen into your average three-bedroom semi-detached home.”

In the same way as improving the inside, increasing the size of properties in the hope it will increase the value is no longer guaranteed.

There will be a ceiling to how much extra it makes, particularly if you end up with the best house on an average street.

“Time is the key factor here. If you want to really benefit from compound interest it’s best to start as early as possible, so if you’re buying property increasingly later in life, you are effectively losing valuable time to gain interest.”

Another factor is where you will live if your home is your pension, Darius McDermott points out.

“You’ll have to either sell or downsize.

“It’s all very well thinking of it as your pension fund but emotionally letting go of the family home can be a lot harder than many people anticipate.”

So is property still a suitable investment option for you?

People will always need somewhere to live but that doesn’t naturally mean that buying a property is a sensible long-term investment in such uncertain times.

Given the costs associated with buying a new house it’s worth considering a wider range of investment options before putting all your eggs in one basket.

Disclaimer: All investment carries risk and it is important you fully understand these risks and are willing to accept them. You may get back less than you invested.

Comments

Be the first to comment

Do you want to comment on this article?
You need to be signed in for this feature